Analysis Of Influential Factors Of China's Informal Finance Market Scale

Since the introduction of Reform and opening policy, China has seen its economy rapidly developed after transformation from planned command economy into market-oriented economy, China's formal financial system has become more comprehensive following the appearance of the stock and bond markets, and the scale of formal financial market is expanding. Meanwhile, with the vigorous development of formal financial market, the informal one has fast become active, reflected as the wide existence of informal financial organizations, and the large loan scale of informal finance. The traditional theory believes under the process of financial formalization, the informal finance activities will gradually die out. However, both systems have developed under China's economic environment. Facing such paradox, we must deeply analyze the generation mechanism of informal financial organization in China, so as to well explain such a problem.Informal financial market scale is determined by the relationship between the capital supplier and demander. As influenced by non-marketization factors, bank carries out unreasonable credit rationing, thus financing demand for informal financial market is formed. As for informal financial organization, control of China's deposit rate and undiversified investment channel at this stage brings about too low return on capital gains to them. However, informal financial organization has risk control mechanism relying on interpersonal relationship. On the contrary, it gains higher income in informal financial market, which impels it to supply capital to informal financial market. Capital supplier and demander in informal financial market, are all affected by non-marketization factors, need to realize their respective maximized benefits through informal finance. Therefore it can be inferred that informal financial market scale can be reduced if financial marketization is deepened. So the traditional financial marketization theory shall be right.We could come to relevant conclusion only through data inspection while confronted with actual situation and deviation of theory. Through modeling and quantitative analysis, we found that GDP & currency amount increase in a broad sense has function of enlarging informal financial market scale while improvement of financial marketization degree is conducive to reduce informal financial market scale, which illustrates that financial marketization theory is in line with China's national conditions, but due to insufficient degree of financial marketization degree, expansion effect brought by GDP & increase in current supply amount in a broad sense shall be stronger than weakening effect brought by improvement of financial marketization degree, thus informal financial market scale is expanded in general. But function of financial marketization should not be neglected thereupon. By contrast, it will be helpful to solve China's informal financial problems to continually exert efforts to expedite financial marketization process.It can be drawn that financial marketization play an active role in solving informal financial problems through analysis in the passage. We should unremittingly track the road of financial marketization and ensure China's financial market is perfectly developed so as to realize integration of two segmented markets in the end.